In this paper, we will use simplified, somewhat general, terms to explain what are often complex and jurisdiction-specific issues. We are looking at the principles of corruption and its related topics, not specific, detailed, legal requirements and obligations.
We will look at case studies from all over the world. The principles displayed by those case studies are common all over the world and in all manner of industries. They are not restricted to the countries or industries where the cases happened.
In some cases there are judicial reasons why the persons cannot be identified.
Nothing in this paper is intended to be or shall be taken as legal advice.
No liability shall attach to the presenter, The Anti Money Laundering Network Limited or any constituent part, officer of employee thereof as a result of reliance on anything in this paper.
All persons are cautioned to take advice from an appropriate professional who is fully apprised of their specific circumstances.
Copyright Notice: Everything in this paper is copyright 2010 Nigel Morris-Cotterill and Vortex Centrum Limited. Any form of duplication, reuse or the making of derivative material from it is prohibited. All rights are reserved.
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About Nigel Morris-Cotterill
Nigel Morris-Cotterill was a solicitor in London specialising in litigation, commercial transactions and financial sector compliance plus general business advice to companies ranging from global oil companies via banks, insurance companies all the way to one-man bands including companies involved in global trade in commodities and other products and services. He has a unique understanding of the ways in which an extraordinary range of businesses work and interact - and the motivations of those in tiny businesses and on the boards of very major international companies.
With work in Africa, across Asia, Europe and the USA, Morris-Cotterill has a level of exposure to the way business is done that few can match.
From corruption to fraud within companies to the bribery of petty officials, he has seen the full range of offences committed by - and against - companies and helped those companies extricate themselves.
He never reveals any information relating to client assignments, including the name of the client. Therefore, in his presentations, his case studies do not disclose any information relating to his clients or those of The Anti Money Laundering Network except in relation to cases that he had no dealings with.
What are bribery, corruption and plunder?
Paying a bribe: making a payment to a person to perform services that he is already contracted to perform, or to expedite or to not delay the performance of those services.
Taking a bribe: receiving a payment from someone other than one's employer to perform services that one is already contracted to perform or to expedite or to not delay the performance of those services.
Similar to a bribe but the purpose is to
a) secure the performance of an activity which is not provided for under the contract of employment or
b) secure the non-performance, or not properly performed, services that are contracted for.
These include the making of decisions.
The term "corruption" is also widely used for the taking of a secret profit.
Plunder / Embezzlement
In the commercial world, embezzlement is the fraudulent obtaining of moneys or other assets belonging to an employer.
In the political world, it's called plunder and it relates to elected officials who, as they are not employees, are outside the definition of embezzlement.
Case studies: Bribery
Lecturer "sold grades:
In June last year, a 52 year old lecturer from India was charged with soliciting a payment to give higher grades.
Dr Krishna Prasa Pramulapati pleaded not guilty to the allegations that he accepted MYR800 (a little over USD200) to improve the grades of a female Indian student at Malaysia's MultiMedia University in her exams.
He was granted bail and two Malaysian sureties taken. He has no family ties in Malaysia.
So far as we know, the case has not yet come to trial.
Easy money in banking
SIT Pan Jit, 63, a merchant in Hong Kong has been charged with an attempt to bribe an officer of the Private Banking department of DBS in Hong Kong. SIT is charged with offering HKD2.5 million to the banker between June 2004 and November 2008. It is alleged that the sums were intended to be "rewards" for handling SIT's bank accounts.
No plea has been taken and the case is being remanded to a superior court but investigations are continuing.
We can, at this stage, only speculate what special services the private banker may have been asked to perform in order to be so handsomely paid in addition to his salary. No additional information is, at present, publicly available.
Doctoring the books
Investigators in Milan discovered that a number of doctors operated a ring in which they sold fake medical certificates, allowing workers to take time off and to claim benefits for non-existent illnesses.
Case Studies: Corruption
Money for nothing and the chicks for free (Dire Straits)
Ong Thiam Hock, a decorated police officer with the Singapore Police liked money and sex. So he found a way of getting them for free.
ONG was one of a number of officers who raided an unlicensed massage parlour in November 2007. ZHONG Ziaoquin, the masseuse, moved her operations to the district of Clementi - where ONG was a senior officer. In the meantime, ONG had kept in touch with ZHONG "socially."
She offered him money and sexual favours for giving her advance warning of planned raids - and he did so on two occasions. On the first to warn her to close her shop, and then that he, personally, would mount a raid the next day for the sake of appearances.
He was paid SGD7,000 in total over a period of several months. And received "sexual favours" five times.
In July 2009, ONG was sentenced to 30 months in jail, plus ordered to forfeit the amount of SGD7,000.
LEUNT Sik Chi, 60, proprietor of Fuk Shing Company (Fuk Shing) was a coffin wholesaler as well as a funeral service provider in Hong Kong. In August 2008, the defendant established dealings with the Tuen Mun Hospital, where he came to know a mortuary attendant called "Ah Wai." He paid Ah Wai commissions to refer grieving families to his business.
The total passing in a four month period was HKD9,800. That's about MYR5,000. LEUNG pleaded guilty and in April 2010 was sentenced to six months' jail.
A Hong Kong woman was sentenced to three months' imprisonment at the Kowloon City Magistracy for bribing a Housing Department (HD) clerk with HKD100 - about MYR50 - hoping the latter would allocate a better public housing flat to her.
A bridge too far
Lagos is built across a lagoon - a large area of open sea. It is crossed by the longest bridge in Africa. But within ten years, the bridge was crumbling. The contract had been won, it is alleged, by graft and the materials and construction techniques were inadequate. Today, large sections of it are cordoned off because there is no money to repair it properly.
Holes in the Road
In Milan, a 1980s project to build a light rail system ground to a halt. By the mid 1990s, large holes all over the city were simply cordoned off causing even more traffic disruption than the system had been designed to overcome. Investigators found that public projects had an average of 10% budgeted for payments to corrupt local officials.
The Alaskan Scandal
Senior politicians in Alaska were found to have taken payments and other benefits ranging from USD7,000 through the laying of a new floor in a house to the nebulous offer of a job after leaving office to push through approval of a new oil pipeline in the face of stiff opposition from residents and conservationists plus a rival company which said that no new pipe was necessary for current production needs: the company which wanted the pipe wanted sole control over it.
In another case, a prison-building company employed a lobbyist who told a third party that a Republican senator was "our boy in Juneau" - the capital of Alaska. Just three weeks later, the Senator told the third party that he would be willing to help the company win the contract to build and run a new prison in return for USD24,000. Less than one month after that he received the first of three scheduled payments: USD6,000. A new company had been set up and the payment to the senator was made from that company so as to disguise the source of those funds. The lobbyist, Bill Bobrick pleaded guilty; Anderson was convicted and sentenced to five years.
Yet another case: a Republican party donor bought land from the state at a discount of more than 60% against its true value.
The degree to which the corruption was institutionalised was demonstrated by the fact that the politicians gave themselves a name: The Corrupt Bastards Club. When investigators searched offices and homes, they found that the members had T-shirts and other items of clothing with the name, or its initials, emblazoned on them.
The German Experience
Germany has always claimed that its business practices were devoid of corruption but everyone else knew better.
In recent years new anti-corruption units in Frankfurt and Munich have uncovered successfully prosecuted long-running examples of corruption involving
Siemens: prosecution 2006, concluded 2010. Some euro 1,300 million paid to foreign politicians and officials for contracts. The division most affected was the railways division. Siemens was heavily involved in the construction of the KL-KLIA rail link and is currently involved in the planning for the proposed Singapore - Beijing railway which will, if the project ever gets off the ground, pass through Singapore, Malaysia, Thailand, Cambodia, Vietnam. It has been involved in rail projects in China. But there were also cases in the telecommunications division.
Michael Kutschenreuter, 55, received a two-year suspended sentence and a fine of €60,000. The court in the southern city of Munich also ordered him to pay €100,000 to charity.
A former financial director at Siemens' telecommunications division, Kutschenreuter is the most senior executive so far to be found guilty of corruption by a German court in the wake of the scandal.
The other man, Hans-Werner Hartmann, also 55, received an 18-month suspended sentence and was ordered to pay €40,000 to charity.
Mercedes: When Daimler-Benz, manufacturer of Mercedes cars and trucks, took over US car giant Chrysler a lowly internal auditor at Chrysler found irregularities. In early 2010, this led to the company being fined under the USA's Corrupt Foreign Practices Court. Millions of dollars in cash or vehicles had been paid to officials in a number of countries, developed and developing, in return for vehicle contracts. Now investigations are being pursued in some of the countries where the money and benefits were paid. The investigation started in 2005.
Volkswagen: German labour relations law provides trades unions with a seat on the board of public companies. The company's former chief executive was accused of arranging cash and other benefits including holidays and sex available to union leaders in order to secure their agreement to changes in workers' pay and conditions.
What do we learn from this?
There is a grey line: business entertaining is the norm and, like it or not, karaoke nights with both drink and women flowing freely is a large part of the way of doing business across South East Asia. The western equivalent is the house party or offsite seminars, often held at weekends - so called "retreats."
Bribing politicians is cheap
Here in South East Asia, we would be amused by the small amounts that it costs to bribe politicians in the USA. The Alaskan case shows that but a New Jersey Case equally demonstrates how corruption becomes institutionalised and how the risk/reward ratio is skewed, with people prepared to risk their freedom and entire future for small amounts.
In 2007, US Attorney Christopher Christie told a press conference "I thought I could no longer be surprised by a combination of brazenness, arrogance and stupidity, but the people elected in this state continue to defy description."
The FBI alleged 11 New Jersey politicians took payments to award contracts on public housing projects:
James Pressley - USD32,200
Jayson Adams - USD15,000
Marcellus Jackson - USD16,500
Rafael Velez - USD14,000
Rev. Alfred E. Steele - USD14,000
Maurice "Pete" Callaway - USD13,000
Jonathon Soto - USD12,500
Keith Reid - USD10,000
Mims Hackett, Jr. - USD5,000 as an "up-front" payment. Also allegedly agreed to accept another USD25,000 once his contact was approved an insurance brokerage contract.
Samuel Rivera - USD5,000
James McCormick- USD3,500
Case Studies: Secret Profit
There is, right now, a trial in Jersey - not New Jersey, the Jersey that's part of the UK channel islands. The defendant, an Indian, ran a company in Nigeria. The company was awarded a contract by General Abacha.
During his years as leader of the Nigerian military, Abacha accumulated an estimated USD4,000 million. But he did not simply steal it: he entered into business deals and took commisions.
In the Jersey case, it is alleged that the Indian arranged for vehicles to be sold to a shell company which then resold them to the Nigerian state (military and police) at inflated prices. The additional margin went to Abacha and a small number of his close associates, some of whom appear to have had a more or less full time job laundering the proceeds of their corruption through a network of companies they set up all over the world - many with bank accounts in developed countries.
In Kenya, a minister who also happens to be the son of the president made substantial profits on government contracts. When challenged to account for his wealth in a case in South Africa, he told the court that politicians in Kenya are badly paid and that, to account for that, the law provides that ministers are permitted to enter into contracts in a form of profit-share (but not loss-share it seems) partnership with government contractors.
Case Studies: Plunder
The dance of the seven mansions
Erap was a famous actor in the Philippines. He told the Philippines people that he would rid their country of the plunder that had been the hallmark of the Marcos regime if they elected him president. So they did.
He diverted money from state coffers into bank accounts and used those to pay to support his seven mistresses including building large houses for each of them.
He told a bank owner to open an account for him in a false name and not to tell anyone who was really behind it.
Convicted of corruption, his assets were seized. He was later pardoned but on the condition that the assets remained confiscated.
The tragedy of the seven milliard
In the late 1990s, Russia's economy was in a constant state of near collapse. It was supported by the IMF. The IMF handed over a large sum of money and USD7,000 million of it simply disappeared, only to pop up later in the accounts of The Bank of New York where it was shifted around between more than 100 shell companies, all with accounts in the same back, all over the world. [edit 2022: there is now a body of opinion that the money that went through the Bank of New York was not directly connected to the moneys passed to Russia by the IMF)
Is Corruption, etc. always a bad thing?
Corruption distorts markets.
Corruption increases the price of goods and services paid to government.
Corruption creates an imbalance between those who can afford to pay and those that cannot leading to, amongst other things, the risk of social unrest.
Look at Thailand.
Corruption keeps countries poor.
Look at Cambodia and Nigeria. Both have sufficient natural wealth of one sort or another to lift their populations out of poverty.
Corruption enriches the few at the expense of the many.
Look at China and Vietnam: petty officials have amassed large sums of money for abusing their power and influence. So, incidentally, have they done so in capitalist societies.
There is no such thing as a non-corrupt government. Corruption is an extension of influence. It's just a matter of where we draw the line. Handing over a brown envelope stuffed with cash is definitely wrong; making your old friend and mentor chief judge and letting him spend hundreds of thousands of pounds on redecorating his official apartments is fine - at least if you are a British prime minister.
And look around you: no one imagines that Malaysia's dash for modernity has been without cronyism, corruption and the use of inappropriate influence. But in the case of Malaysia, there is a clear difference when compared with, say, Laos. There have been massive strides forward, some not brilliantly executed, some badly thought through and therefore needed an expensive fix later, but on the whole, one has to say that whilst in principle all corruption is bad, if there is an example of where corruption has produced demonstrable benefits, Malaysia is probably that example.
But that is not to say that it should be allowed to go on: it should not. The country has achieved its primary objective of proving that it can achieve great things. But low grade corruption, from the parking jockeys paying off traffic wardens to the annual fee-fest of police collecting on the spot payments to support their holidays is a very bad thing. And high-level corruption merely facilitates the existence of a culture that says it's OK to do these things.
It isn't and since the arrival of PM Badawi, there has been a significant improvement in the investigation of corruption at all levels. Of course, there is a long way to go. Malaysia is 30 years behind Hong Kong but it's moving fast.
Kenya's lawmakers held up the passing of laws to combat money laundering for some five years trying to exclude corrupt payments from the list of predicate crimes.
Thailand's original counter-money laundering law excluded corrupt payments: when it was added, within two years, 80% of the funds confiscated by AMLO were related to corrupt payments. Malaysia's AMLA, drawn under PM Mahathir, included the making of corrupt payments.